The unprecedented events of 2020 are fueling a growing sense
of urgency among philanthropic families to make a meaningful impact on the
organizations and causes they care about. Understanding each client’s
charitable giving goals, as well as the strategies available to achieve those
goals, can help advisors build lasting relationships.
As we near the end of this pivotal year, advisors should
mind the these key trends in charitable giving:
1. Charitable giving is not just a consideration in
estate and tax planning — it is the catalyst.
The motivating factors for creating or updating a will or
estate plan have often focused primarily on tax planning and wealth transfer,
with charitable giving as a by-product in service of those goals.
The effect of dual crises, COVID-19 and racial and social
inequity, has led to heightened awareness, as people look for ways to help make
a lasting impact.
The desire to invest in solutions to problems rather than
simply make a donation leads to a more complex, long-term and multi-faceted
approach to charitable giving that involves not just an individual, but the
entire family across generations.
As the alignment of values with legacy becomes more of a
priority, purpose and impact are considerations that are driving conversations
about the need for comprehensive planning. Leading with what matters most and
following that thread to determine how to best meet charitable goals can help
an advisor become integral by moving from providing transactional advice to
2. Charitable remainder unitrusts, charitable lead
annuity trusts and charitable gift annuities are surging in popularity.
Because of the current economic environment and changes
imposed by the SECURE Act, charitable remainder unitrusts (CRUTs), charitable
lead annuity trusts (CLATs) and charitable gift annuities (CGAs) — commonly
referred to as split- interest vehicles as both the charity and the donor/beneficiary
have a shared interest — are increasingly popular vehicles for charitable
giving as donors look for flexibility and security.
The limitations on the distribution period to most
non-spouse beneficiaries for IRA assets imposed by the Secure Act may be
resolved by naming a CRUT as a beneficiary of the IRA. A CRUT is a tax-exempt
entity which provides a beneficiary with income for life or a fixed-term then
distributes the remainder to charity.
Under certain circumstances, the IRA account owner could
fund the CRUT with multiple distributions from the IRA over longer term than
imposed by the Secure Act.
A CLAT, a trust which makes distributions to charity for the
grantor’s life or a fixed term and then passes back to the grantor or their
heirs, can be used to provide a similar benefit to heirs as an inherited IRA,
but with the added potential benefits of providing a charitable deduction for
the grantor and a significant gift to charity.
CGAs, issued by many charities, provide the security of a
fixed annuity payment for life with the remainder going to charity. Donors can
receive a charitable deduction and can also spread any capital gains over the
actuarial term of the gift if funded with long-term appreciated property.
There are income, gift and estate tax complexities and legal
issues that will require sound advice so that donors can be assured of avoiding
any unintended consequences in making charitable gifts using these vehicles.
However, donors are increasingly finding these vehicles attractive for their
life-income, favorable tax and
3. Transformational gifts are being funded by
Donor-advised funds (DAFs) have long been popular by those
who prefer a “checkbook” method of giving. The immediate charitable deduction,
ease of funding, recommending grants to charity and flexibility in choosing
when/what causes to support make DAFs a preferred option for charitable giving,
with almost 13% of total 2018 individual giving of $292 billion coming from DAF
The need and urgency created by the pandemic has resulted in
increased grant making from DAFs as philanthropists strive to quickly address
Fidelity Charitable, the largest commercial DAF sponsor,
reported in May that COVID-19 relief grants accounted for $236 million, and
total grants year-to-date had increased 20% from the same period in 2018 to
over $2.5 billion. DAFs are providing the resources nonprofits desperately need
to support relief efforts.
DAFs also are being used in creative estate and tax planning
strategies to promote legacy, family and next generation giving, which
historically have been factors in forming private foundations.
One such approach is to name a DAF as the charitable
remainder of a CRUT and naming children or grandchildren as successor advisors,
creating an opportunity for long-lasting engagement.
Taking a proactive approach in discussing charitable giving
can lead to planning opportunities well beyond a simple gift. Tax laws and
legislation that impact estate planning
may change, but maintaining focus on legacy, purpose and impact can
provide a grounding for every planning discussion.
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